All posts tagged bank downgrade

Portugal’s banks didn’t lend blindly into a massive property bubble and didn’t get caught in subprime shenanigans. Yet they’re still in big trouble–that’s not a happy message for other European lenders.

As detailed by Moody’s, the reasons for the downgrade are non-controversial: the banks have significant holdings of sovereign debt, especially Portuguese debt, that is now riskier than ever. And this is amid austerity measures in the country, higher loan delinquency and widespread jitters in capital markets–all of which mean few investors or other banks are willing to lend them money.

On one level, this is just an example of the malignant loop in which highly-indebted European governments and banks have found themselves. For a long time, as Lisbon built up the debt pile that led to a E.U. bailout earlier this year, Portuguese banks did their patriotic duty to enable them by buying government debt that they used as their capital base.